Question

1.Duke was approved for a 30 year conventional loan for $250,000 at...

1.    Duke was approved for a 30 year conventional loan for $250,000 at 3.65% fixed rate. He was also approved for a 15 year conventional loan for $250,000 at 3.45% fixed rate. He has $20,000 to put as a down payment. He has to pay insurance of $1400 a year and property tax of $2500 a year. Use time value of money to figure out the best options for Duke. (Be sure to show your work if you are able)

 

I need help with d and e the above is just for context and interest rates.

d.    He plans to make mortgage payments of no more than $700 a month (this is including escrow). What price of house can he afford?

 

 

e.     How much more principal will he have to pay per month in order to pay off his house in 7 years if he does the following: $150,000 value home, 25% down payment, 15 year loan.

 

Answer & Explanation
Verified Solved by verified expert

1. The best option of Duke is the 30-year loan.

 

d. 15-year loan = 98,252

30-year loan = 153,020

 

e. 1,593

 

Step-by-step explanation

1. Duke should go for 30-year loan since the monthly installment (1,469) is lesser than that of 15-year loan (2,106)

Monthly Installment (equated) = Loan Amount / PV of Annuity Factor

16807879

d.  Price of House = Monthly Payment * PV of Annuity Factor

16807848

e.  

16808044

Image transcriptions
Loan Amount Termsin Month Monthly Interest Rate [Fixed RateflE} PU Annuity Factor @ 3.45% per month Cash Outflow per Month Monthly Payment Add: Monthly lnsu rance [1,400,1'12} Add: Monthly Property Tax {2,500,312} Total Monthly {Sash Outflow Total Monthly Cash Outflow Multiply": No. of months to fully pay [15 years} Total Accumulated Payment [15 years} Divide: Desired no of months to pay [F years} Monthly payment [if fori'years installment} Less: Monthly Cash Outflow [15 years} Additional amount to pay 15-'r'ear Loan 150,000.00 130 months 0.335% 140.30 1,003.03 110.5? 203.33 1,393.53 1, 393.53 130 250, 302.50 31-1- 2, 930.45 1, 393.03 1.59238